What does the 2020 election mean for greater equality and democracy?

The Labour-Greens cooperation agreement having been signed, and ministerial portfolios allocated, what progress can we expect in the next three years towards greater economic equality and deeper democracy in New Zealand?

Greater economic equality

Verdict: Small steps towards dealing with one half of the problem

Labour has a free hand to implement the promises in its manifesto, many of which are sensible but unlikely to make a large dent in the problem of a wide disparity between rich and poor. Bear in mind that income inequality rose more rapidly 1985-2005 than anywhere else in the developed world, and we have stagnated at the resulting level ever since. Rewards go disproportionately towards the already wealthy, leaving many in poverty with their talents squandered and health and social problems on the rise.

Labour will address the poorer end of this problem in various ways:

• Beneficiaries will be able to earn significantly more before their benefits are clawed back;

• Fair pay agreements will allow workers who have won good terms with one employer to have those conditions spread throughout their industry;

• The minimum wage will continue its rise towards $20 an hour;

• Some 200,000 children will get free school lunches; and

• Another 8000 state houses will be built.

For this work, key ministers will include Carmel Sepuloni (welfare, employment and ACC), the Greens’ Marama Davidson (homelessness), Poto Williams (public housing), and Michael Wood (workplace relations). Prime Minister Jacinda Ardern retains responsibility for child poverty reduction.

Hitting her child poverty targets, however, will be demanding, given the impact of coronavirus. And the principal drivers of poverty will not be substantially addressed. In the last 40 years, the share of company revenue going to staff has fallen from 60% to 50%, leading to the average wage being $12,000 lower than it would have been. Fair pay agreements will not make much of a dent in this. On the welfare front, benefits need to rise by nearly 50% to genuinely lift people out of poverty and ensure lives of dignity, according to the Welfare Expert Advisory Group. While the Labour manifesto promises to prioritise “increasing income support”, it contains no specific undertakings. And while new state houses are welcome, the amount promised is only half the current waiting list.

Moreover, these policies are all aimed at the poorer end of the spectrum, even though action on economic inequality is needed at the wealthier end as well:

• A lack of competition in many sectors of the New Zealand economy drives super-profits towards a small number of firms at the expense of the general public;

• Chief executive pay, principally in the private sector but also to some extent in government, is far higher than is justified;

• IRD research suggests many of New Zealand’s wealthiest individuals pay very little tax; and

• More generally, the system is unsustainably weighted towards taxing income while leaving wealth virtually untaxed.

Famously, however, Ardern has ruled out any kind of wealth or capital gains tax during her political lifetime, while Finance Minister Grant Robertson made clear there would be no new taxes of any kind in this Parliament. Apart from a new 39% rate on income above $180,000, very little will be done to address unjustified inequality at the wealthier end of the spectrum. David Parker, the new Minister for Revenue, will have to see what he can do to generate greater fairness and revenue from the existing system.

Deeper democracy

Verdict: Bold subjects but little clarity

With relatively little fanfare, Labour has announced that it will examine some major weaknesses in our democratic system. Its cooperation agreement with the Greens notes that it plans to address:

• the Electoral Commission’s 2012 recommended changes to MMP, which crucially include:

  • lowering the threshold to 4%; and

  • ending the coat-tailing rule;

• electoral finance law, which involves reassessing donations rules that allow the wealthy excess influence over politics with minimal scrutiny; and

• the length of the Parliamentary term, which could be extended to four years.

(NB: While the government may also make some slight progress on greater autonomy for Māori, this element of improving democratic systems merits its own separate discussion.) But while these are big issues to take on, there is no clarity as to what Labour will actually do, and some of the proposed changes, notably the Parliamentary term, would almost certainly have to go to a referendum. In addition, the review of electoral finance law will be part of a wider review of the Electoral Act, initiated by the previous justice minister, Andrew Little, who has moved to health. His replacement, Kris Faafoi, has not made profound change in any of his previous portfolios, including commerce, though he is widely regarded as one of the Cabinet’s most surefooted performers. He will presumably also have responsibility for the reform of the Official Information Act that was previously in Little’s bailiwick.

Beyond these headline areas, Chris Hipkins, who remains Minister for Public Services, will have the opportunity to continue his open government reforms of the previous term, which included publishing ministerial diaries and Cabinet papers. How far he will go, and how substantive will be New Zealand’s next Open Government Partnership action plan, remain unanswered questions. A wide range of democratic innovations being taken up overseas – including citizens’ assemblies, participatory budgeting and crowdsourcing legislation – still struggle to get on the agenda here.

Other developments of note include the return to Cabinet of David Clark, now responsible for both commerce and “the digital economy and communications”. Again, it is not clear how much progress to expect here.

Guardian: Jacinda Ardern must use her mandate to tackle child poverty in New Zealand

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As the New Zealand First party’s vote share evaporated on election day, so too did Jacinda Ardern’s last excuse for not making more progress on child poverty, her signature issue.

No longer able to blame inaction on her one-time conservative coalition partner, and possessing an absolute majority, the Labour leader now has a free hand on an issue dear to her heart. She may have labelled climate change her “nuclear-free moment”, referencing the 1980s Labour government’s famous opposition to nuclear weapons, but it is child poverty reduction, not climate change, that she has always taken as her “extra” portfolio.

And Ardern has already made modest progress. Data released in February showed that, on seven out of nine key measurements, child poverty had fallen slightly in her first year in office. And that data was collected before her main anti-poverty initiative so far, the Families Package, had fully taken effect.

The latest Treasury modelling shows that, pre-coronavirus, Ardern was on track to achieve the 2021 targets in the Child Poverty Reduction Act, which include lowering from 16.5% to 10.5% the proportion of families with less than half the typical (median) household income. This, though, was a little bit like getting to base camp on Everest: no mean feat, but infinitely easier than the task ahead.

The coronavirus-induced recession has clearly worsened some forms of poverty – just look at the food bank queues. The Treasury thinks the number of families in “material hardship” – those reporting they are unable to afford basic items – will “rise sharply”. Progress on other measures, such as the household incomes one, is likely to stall or partially reverse.

Ardern’s long-term targets, meanwhile, are daunting. They require the proportion of households with less than half the typical income to fall to just 5% by 2028, for instance.

It is important to stand back and appreciate the scope of this ambition. It would cut the number of children in poverty by two-thirds in a decade, placing New Zealand amongst the world’s best performers and profoundly reducing misery and marginalisation.

But ambitious targets require ambitious policy agendas – all the more so as the hardest challenges are still to be met. The families helped so far will largely be those who were in relatively “shallow” poverty, needing perhaps an extra $50 a week to be lifted over the line. The families Ardern will have to help in later years will be as much as $350 a week under the poverty line, according to the 2018 Welfare Expert Advisory Group (WEAG). And their numbers will have been swollen by coronavirus.

For all that she is supposed to be a transformational figure, Ardern has relied largely on the “third way” policies of her Labour predecessor, Helen Clark, in her fight against child poverty. The Families Package rejigged a familiar array of tax credits and payments, albeit signalling a minor shift to universalism via the best start payment for all newborns.

Some more ambitious policies are on the way. The minimum wage will continue its rise towards $20 an hour, while so-called fair pay agreements will ensure that if workers win good pay rates with one employer, those conditions are spread throughout their industry. Beneficiaries will be able to earn significantly more before their benefits are clawed back, some 200,000 children will get free school lunches, and another 8,000 state houses will be built.

But most experts believe these policies will be nowhere near enough. “There’s nothing in place that would give you any confidence that they have the tools to meet the 2028 targets,” says Susan St John, a founding member of the Child Poverty Action Group. At a minimum, she says, the government needs to raise core benefits by nearly 50%, as the WEAG recommended. It should also simplify and increase Working for Families payments, remove sanctions, forgive beneficiaries’ debts and make housing more affordable.

Ardern’s innate fiscal and political caution will not help here. Although New Zealand’s coronavirus-induced public debt will, at 55% of GDP, be modest by global standards, she seems reluctant to spend up large on things like solving child poverty. Yet that fight, if it is to be successful, will be expensive, even if it brings immense savings – in the form of healthier, better-educated children – in the long run.

St John says the government could easily spend $1bn a year – on a package that includes extending some tax credits to beneficiary families – just as “a holding position to relieve the depth of poverty”. This starkly illustrates the scale of the challenge Ardern faces. She has made it part way up the mountain: but does she have the strength for the climb ahead?

Prospect: Jacinda Ardern, the God of small steps

Read the original article in Prospect

New Zealand’s geology and culture are often at odds. Famously prone to earthquakes, the South Pacific nation has, nonetheless, a low-wattage, “she’ll be right” attitude to life that does not lend itself to political landslides, at least not since it adopted proportional representation three decades ago.

But it just got an electoral earthquake. Despite the wear and tear of holding power for three years, Jacinda Ardern has led her Labour Party to an astounding 49 per cent vote tally and an outright majority, consigning the opposition National Party to a mere quarter of the vote. It was a rout, a “blue bloodbath,” and a swing to an incumbent party for which there are few if any modern parallels.

Yet it is hardly the decisive left-wing victory that it might appear to the outside world. If the New Zealand Labour Party is on a journey, it is one in which some important paths have been firmly blocked off, their vistas disappearing from view, even as other ones open.

There is no argument that Ardern has, in some respects, profoundly changed the political landscape. Her compassionate response to last year’s terrorist attack on Christchurch Muslims, combined with her impressively competent handling of Covid-19, have shown that kindness is not a political weakness but in fact a virtue, a form of strength.

I summed up her emerging “ethos of kindness” in a profile for Prospect last year, and it is an approach which has now been thoroughly vindicated in narrow electoral terms, gaining her unparalleled trust among centre-right voters. It has also completely changed the tenor of New Zealand politics, at least for the present. She dominates the political scene, and can now carry the country with her on issues that might otherwise have seemed out of reach.

Free school lunches, currently being piloted in a handful of schools, will be rolled out to hundreds of thousands of children. So-called fair pay agreements will allow workers who win good terms with one employer to get those conditions spread right across their industry. New Zealand’s equivalent of council house building will be ramped up, minimum wages lifted, dirty rivers cleaned up.

Economical with radicalism

Few of these policies are especially innovative, though; many are already standard in countries like the UK. And it seems unlikely that Ardern will surpass them in the next three years, for the simple reason that she never campaigned on doing so. Labour’s 2020 manifesto was notable principally for its lack of ambition. Its biggest initiative to address child poverty, one of Ardern’s signature issues, was a pledge to increase the amount that beneficiaries can earn before their benefits are clawed back. Its headline climate change policy was—wait for it—to make the public bus fleet zero-emissions by 2035.

And it is on economic issues, long the left’s weak point, that Ardern’s limitations are most evident. Labour’s only tax change this term will be to raise the top income tax rate from 33 per cent to 39 per cent, a move that will at best raise hundreds of millions of dollars, not the billions required to address climate change and child poverty. On the campaign trail, even a desperately enfeebled National Party was able to goad Ardern into ruling out a wealth tax, a key policy plank for her former coalition partner, the left-wing Green Party. Ardern dismissed it not just for the next three years but for her political lifetime. And she has previously done the same thing for a capital gains tax, a policy that is part of the furniture in many developed countries.

Meanwhile, the public discussion about New Zealand’s modest levels of Covid-induced public debt, forecast to peak at around at 50 per cent of GDP, which—for comparison—is around half of the ratio the US and the UK are now looking at, is nonetheless dominated by the supposed need to slash borrowing.

Ardern has, in short, been unable—or unwilling—to change the conversation about tax, spending, the size of the state, and government’s role in the economy. When it comes to tax in particular, the impression is of a party left trying to govern in a constantly shrinking space.

Centre forward

These are the paths that are being closed off; at the same time, others have opened up. While Ardern has given way on economic issues, she has cleared space on many social ones. New Zealand’s antiquated abortion laws have finally been modernised, a change that the election entrenches.

She has also won—and won big, without having to give ground on the standard conservative issues—crime, “security,” immigration, welfare spending and the like—and in that sense, at least, offers a real-break with Third Way triangulators in the mode of Tony Blair and Bill Clinton. And now freed from having to work with the conservative New Zealand First party, her other more populist former coalition partner, Ardern may in fact take steps towards a gentler, more restorative approach to criminal justice issues. Tougher hate speech laws may also follow to protect minority groups.

In a wider sense, though, Ardern remains fundamentally cautious—progress will have to be forged through consensus rather than struggle, and will only be delivered in increments. Disdaining even the term “progressive,” she will govern from the centre, aiming to hold onto as many of those newly won centre-right voters as possible and hoping that, by gradually acclimatising them to change, she might win a mandate for slightly firmer steps in 2023. A plan that will only work if nothing trips her up between this rare moment of opportunity, and then.

Some landslides, in short, remake the landscape only gradually, if at all.

RNZ: Jacinda Ardern has huge majority but that may not be much use to her

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"I want us to simply be the country we already believe we are." That's how Jacinda Ardern described her ambition for New Zealand in 2018, and it won't have changed in the light of last night's extraordinary election victory. The ambition is especially pertinent when it comes to inequality and child poverty, which stand in stark contrast to the lingering belief in New Zealand as an egalitarian nation.

As Labour commands an absolute majority for the first time in the MMP era, the party could in theory go all out to bring the facts back in line with the belief, slashing poverty rates and restoring a sense of fairness to the nation. But in practice they cannot, because they have already tied their own hands.

While it is still possible that Labour will make some kind of arrangement with the Greens to bring them into the government tent, such a move would at best extend only to the less controversial Green policies in areas such as conservation.

Nonetheless Labour will undoubtedly take some steps to reduce poverty and inequality. They will significantly increase the amount of money beneficiaries can earn before having their benefit clawed back, reducing the welfare system's notorious poverty traps.

They will increase paid sick leave to 10 days, pay the Living Wage to government contractors, and create fair pay agreements that allow workers who win good terms and conditions at one employer to spread them right across their industry. They will make trades training free, build 8000 state homes, and continue the roll-out of free school meals until they are so embedded as to be very hard for a future National-led government to abolish.

None of this, however, will make a major dent in the poverty rates that see around one in five New Zealanders lacking the income they need for a life of minimal dignity and participation in society.

This is especially true in the light of Covid-19. Pre-coronavirus, Ardern had made modest inroads into child poverty, according to early statistics and Treasury modelling. But tens of thousands of people are losing their jobs and the economy is heading back into recession.

Absent further government action, this will push many more families into poverty. If Ardern is to stay on track to meet her child poverty reduction targets, which involve more than halving it over a decade, she will need some real financial firepower.

Other ambitions, such as making New Zealand's rivers swimmable again, can be met through regulation - that is, without major cost (to government, at any rate). But not so inequality, which is quite literally a question of cash. And cash is precisely what Ardern has denied herself.

Either a wealth tax or a capital gains tax could have raised billions of dollars from the wealthiest New Zealanders in order to support a better life for the less fortunate. But Ardern has ruled both of them out, not just now but for her political lifetime.

The prime minister may have had a moment's pause on election night, reflecting that she had forever ruled out a wealth tax - or indeed any new tax this term except one new top income bracket - in order to hang onto a final 2-3 percent of swing voters that, as it turns out, she didn't even need (given the wasted vote, even 47 percent would have been enough for an outright majority).

But that's already in the past. Ardern now has to work out how on earth she will reduce inequality, all the while holding back the tidal wave of poverty represented by the newly jobless, without the extra revenue she needs for the task. The prime minister may have unparalleled popularity, but that huge majority may not be much use to her.

Guardian: Want to build high-rise homes for 74,000 more people in Wellington? Build consensus first

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It’s like a slow-moving nightmare, in which the same battle is fought over and over again, without resolution.

The city council in Wellington, New Zealand’s capital, has announced plans to house an extra 74,000 people – plans that would require some low-rise inner-city villas to be replaced by dense modern apartments.

This has provoked howls of outrage from property-owning 70-year-olds – who, in turn, face sneers of derision from young would-be house buyers. Both sides are entrenching themselves behind their battle lines, the same lines that have bisected recent attempts at increasing urban density in cities in New Zealand – and indeed around the world.

But there might be a path out of this impasse. In the 1980s, the US city of Seattle tried to densify, but saw its efforts sunk by intense neighbourhood conflict and Nimbyism (the ‘Not in my backyard’ phenomenon). So a decade later, the city council took a different tack: it decided to trust its communities.

City council staff, in particular their legendary neighbourhoods department head, Jim Diers, realised they needed to rebuild relationships – both between the council and residents, and within fractured communities. The council appointed neighbourhood development coordinators who acted as “intermediaries of trust” and held hundreds of one-on-one meetings with often-suspicious residents.

One coordinator, interviewed by the academic Carmen Sirianni, described their role this way: “I find people who are frustrated and are not plugged into the process and are just throwing rocks, and I meet with them and help them understand how they can work with their neighbours.”

Community ties re-established, the council then made their pitch, which in essence was: “We all know we need a denser inner-city, but you’re fearful about that – so you take charge. You draw up the plan for how this will go down.”

Communities earmarked for greater density were given $10,000 each to develop their plans. That done, they got further funding for the next stage – but only if they could prove they had reached out to every part of the community and hadn’t let the usual suspects dominate. Officials supported these “citizen planners” with neighbourhood design toolkits and software that mapped demographics, land use and transport flows.

The community plans were then tested at “alternatives fairs”, sent to residents for approval, reviewed by officials, and subjected to neighbourhood hearings. Displaying remarkable engagement, some 20,000-30,000 residents took part in a city of 560,000.

After years of conflict, the process brought together politicians, neighbourhood leaders, and even local groups that had formerly been at loggerheads. Best of all, it delivered densification: added together, the neighbourhood plans provided all the housing the council had sought.

Along the way, a pro-development, anti-Nimby constituency was born. Seattle today remains – for various reasons – one of the few American cities to be densifying effectively. Citizen planning hadn’t been quick or cheap but, as Sirianni puts it: “The city council’s investment of money and time ... had clearly paid off.”

All this might seem counterintuitive, given Seattle’s previous animus towards densification. Two factors made the difference: control and environment.

People often feel more relaxed about change if they have a modicum of control over it. And in a good, well-facilitated environment, one where people are encouraged to listen deeply to the arguments of others, consensus can be reached where it seemed impossible. People who shout slogans at each other in vox pops or newspaper front pages can find surprising common ground.

Such results could be expected in Wellington, or indeed elsewhere. It’s easy to laugh at older left-wingers opposing the housing so badly needed by those they claim to help. But what if baby-boomer fears about densification turn out to be legitimate concerns about what private developers will build if left to run rampant? What if, once they hear good arguments in a relaxed setting, their concerns can be assuaged by stringent rules that ensure high-quality architecture?

What if, conversely, young people who see no merit in draughty old villas come to better understand the value of built heritage, the stories of old houses and neighbourhoods that can so profoundly enrich the present? What if they realise that some suburbs do need more protection than the city council’s plans allow, and that mouldy houses can be improved, not just demolished?

This potential consensus is the prize on offer. The challenges of running such a deep, community-led process are of course real, and complex. In New Zealand, there would have to be elevated role for local iwi (indigenous tribes), given their role as mana whenua (groups holding customary land rights and authority).

The alternative to dialogue, though, is all too predictable: a long bout of trench warfare, one in which bickering prevails, the council’s plans are dragged through the courts, catastrophic amounts of time and money are wasted, and no one gets what they want. Right now such an outcome seems likely – but not, as Seattle shows us, inevitable.

Guardian: New Zealand’s astounding wealth gap challenges our ‘fair go’ identity

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The extent of wealth inequality in supposedly egalitarian New Zealand has been laid bare by figures showing the wealthiest individuals have over NZ$140bn (US$93bn) stashed away in trusts – and overall have nearly 70 times more assets than the typical Kiwi.

The new data, drawn from the 2017-18 Household Economic Survey, are likely to underestimate true inequality, as the ultra-wealthy are generally reluctant to take part in such surveys.

The data show that New Zealand’s wealthiest 1% of adults – around 38,000 people – have $141bn in trusts. Another 150,000 or so people, rounding out the rest of the wealthiest 5%, have trusts worth a further $122bn.

Trusts are vehicles through which individuals can notionally give their assets to trustees to hold on behalf of named beneficiaries. In practice, the “givers” often retain control of the assets while having superficially ceded ownership. In the past this has allowed wealthy individuals to avoid taxes, hide assets from spouses and creditors, and receive care subsidies to which they are not entitled.

Although some of these practices have been curbed, the figures will raise renewed questions about the need to overhaul trust law. IRD research has revealed extensive use of trusts among wealthy individuals who pay relatively little tax.

The wealth inequality data, developed in conjunction with Statistics New Zealand researchers, also show that the 1% have an average (mean) of $3.6m held in trusts, $1.6m in shares and $470,000 in cash. Their debts are on average just $80,000.

The typical (median) person in the 1% is worth $6.2m. In contrast, the typical New Zealander is worth only $92,000 – 68 times less.

Among those in the poorest half of the country, meanwhile, the average person owns assets worth just $46,000 and has debts of $33,000, leaving them with a net worth of $12,000. They have negligible wealth in trusts and on average just $4,000 in the bank, leaving them vulnerable to sudden financial shocks.

When it comes to the middle classes – the 40% of the country who are above the mid-point but below the wealthiest 10% – have a higher net worth, on average $352,000, most of it tied up in housing.

Overall, the wealthiest 10% have 59% of all the country’s assets, and the middle classes around 39%. That leaves the poorest half of the country with just 2%.

These inequalities may well be embedded. The 2017-18 figures represent the status quo inherited by Jacinda Ardern’s government, whose record to date will be revealed by the 2020-21 net worth survey, now underway.

Not much change should be expected, however. On becoming Labour leader in August 2017, Ardern resuscitated the idea of a capital gains tax, 80% of which would have been paid by the wealthiest 20%. But after vociferous opposition from property investors and the National party, she eventually ruled it out under her leadership. She has also been distinctly lukewarm about the Green party proposal for a tax on wealth over $1m.

When it comes to the most unequally distributed forms of wealth, such as trusts, shares, bonds and direct ownership of companies, Ardern’s Labour-led government has shown little appetite for redistribution. In housing, a substantial and accelerating state house-building programme cannot make up for the failures of Kiwibuild and other initiatives.

Some commentators would argue that New Zealand remains the land of the “fair go”, a country where all have opportunities to get ahead. Its wealth inequality is only slightly worse than the developed country average. But it is difficult to see how it can be fair for any individual, however meritorious, to be “worth” nearly 70 times the typical New Zealander.

There are also good reasons to think that opportunities are far from equal. Wealthier parents are able to provide their children with many opportunities unavailable to poorer kids, as well as access to exclusive schools and networks.

Analysis of the NBR Rich List shows a strong dynastic trend: over one-third of businesses on the list are actively being run by descendants of the fortune’s originator, with the number of family members passively receiving the proceeds of that wealth undoubtedly higher still.

While some rich listers are entrepreneurs, developing useful new products, fortunes made in finance, insurance and real estate are predominant. Conversely, the country’s essential workers – including health staff on the front line of the coronavirus pandemic – earn so little that they are often unable to save for a house deposit.

IRD research, meanwhile, shows that more than half the country’s ultra-wealthy individuals – those with over $50m – declare incomes of less than $70,000, an implausibly low figure. They avoid tax, the IRD argues, by taking their income as untaxed capital gains, undervaluing the services they provide to their own companies, and transferring wealth to charities which they control but which make “little or no charitable donations”.

Such findings are challenging to New Zealand’s self-identity. The country’s egalitarian image was once memorably described by the historian Melanie Nolan as “a rich amalgam of truth and myth”. These new wealth figures suggest that the latter increasingly predominates.

Greens wealth tax

The Green Party have just announced a wealth tax – 1% annually on net worth above $1 million, and 2% above $2 million – as part of their Poverty Action Plan.

I’m very pleased to see this tax announced, as it follows substantially the recommendations made in my paper earlier this year for Tax Justice Aotearoa. In particular, it’s pleasing that there are no exemptions for certain kinds of wealth – business assets, for instance, or KiwiSaver – as it is the riddling of such taxes with exemptions that has hampered them in other countries and paved the way for their removal.

Such a tax is unlikely to become a reality in its proposed form; even if the Greens and Labour were in a position to form a government after September’s election, it would undoubtedly be made less radical by the larger party. But it has great merit, focuses debate on inequality, and enlarges the public’s sense of what is possible.

Full details of the Plan, including the wealth tax, are available here.

Budget openness survey has mixed news for NZ

Earlier this month the results of the latest Open Budget Survey were released – and they make mixed reading for New Zealand, despite our high overall score.

The Open Budget Survey is one of those classic international comparison tools, in which independent observers run the rule over a country’s practices in a particular area – in this case, whether the government is open about the processes and information surrounding its Budget.

Overall, New Zealand scores 87/100, a world-leading tally. And that reflects the fact that we publish lots of information about the Budget – for those who know how to find it. We also score 81/100 for Budget oversight, which is roughly speaking a measure of parliamentary scrutiny of the Budget – and again, that’s not bad, although it could be improved with an independent fiscal institution, as others have advocated.

Where we don’t look so good is on public participation. Our score there is just 54/100. We don’t publish a citizen’s budget, which is an accessible way to present Budget information – for instance through a comic, video materials, infographics, and so on. In other words, we’re not so good at publishing information for those who don’t know how to find it.

We also don’t have regular processes for getting public input into the Budget. As the survey notes, our public bodies are pretty good at doing consultation when they are forced to for big set piece events. But they don’t seem to see the need for deep and regular participation in setting the Budget, which is a shame.

One modest contribution I would make to that debate is to propose something like a citizens assembly budget, in which 100 or so randomly chosen citizens, representative of the wider country, were brought together to draw up an outline Budget. Obviously they couldn’t do all the detail, even if given a whole day or weekend. But they could, with the help of experts, jointly discuss and decide how much money they would like to see spent in various areas – health, education, welfare and so on – and what tax rises or tax cuts they would correspondingly recommend. I think it would be a powerful way to reveal what the public actually wants to see in the Budget, and create a mark against which governments could be judged if they diverged from its conclusions.

Building a bridge across the coronavirus ravine

Yesterday I had the pleasure of appearing in front of the Epidemic Response Committee in a session about the potential economic and social shape of the recovery from coronavirus. My fellow speakers were Rod Drury, Traci Houpapa, Ian Proudfoot, Oliver Hartwich and Ayesha Verrall. The video of the session is here; below is a version, somewhat elaborated, of the key points I made to the committee.

When we look at the graphs that the Treasury has prepared on coronavirus’s effect on the economy, even the best-case scenarios look like a very deep V. We might think of that as being like a ravine, or a crevasse. And the sad reality is that although some New Zealanders will have enough wealth, enough security, enough by way of buffers to build themselves a bridge over that ravine, others will not, and risk falling into it, either permanently or temporarily.

When we look back at the last major calamity to New Zealand, the global financial crisis (GFC), we see that although our government handled it better than many of its overseas counterparts, inequality still resulted. Incomes for those in the richest tenth barely fell, then rose rapidly from 2010. Incomes for the poorest New Zealanders fell distinctly after 2009, and did not recover their pre-crisis level until 2015.

Even temporary dips in income can be devastating. We know from the Dunedin longitudinal study that children who were poor in their early years end up, on average, with much lower reading scores than those who were never poor. They also experience worse health. Even temporary poverty can leave lasting scars.

Some adults, meanwhile, never find their way out of the ravine. The sudden economic shock leads to job loss and poverty, which leads to life falling apart, marital and family breakups, resort to substance abuse as a coping mechanism, depression, and sometimes suicide.

We should be worried about these things recurring in the current crisis, because many households are not well buffered against it, economically speaking. The 2018 Household Economic Survey showed the average or median household had just $8,000 in cash, the kind of “liquid” asset they could use to deal with income losses and build their own bridge across the ravine. A separate 2018 survey showed that a quarter of people have no cash in the bank at all.

So we need to do more collectively to help our fellow citizens manage their way through this crisis. In saying this I reflect the experiences of my distant ancestor Harry Atkinson, a politician for several decades in the second half of nineteenth-century New Zealand. A farmer by background, he believed in hard work, thrift and individual enterprise.

But he saw in the 1870s and 1880s that major economic shocks and depressions simply overwhelmed individuals’ – and even small communities’ – attempts at saving and building up reserves. Accordingly, he became an early proponent of the welfare state, arguing in 1882:

“The only effectual remedy against pauperism seems to me to be not private thrift or saving, but cooperative thrift or insurance, and that to be thoroughly successful… must be national and compulsory.”

This vision of collective security has been constantly renewed by successive governments of all stripes. The coronavirus crisis offers us an opportunity to renew that vision once again.

So what can we do to collectively manage this crisis, both in the short term and long term? In the short term, we need to build a bridge on which everyone can walk across the ravine. We need to enhance stability and security for everyone.

That means, for instance, helping people who have lost their jobs, by providing detailed and high-quality skills and retraining schemes. People may not have security in a particular job, but they can have security of overall employment.

It also means doing more for casual and gig-economy workers – making it easier for them to show that they are in fact permanent employees and deserve all the relevant rights, but also building a welfare system that they can access seamlessly and which tops up unexpected shortfalls in income in real time.

It means providing greater security and dignity for people on benefits – not through a Universal Basic Income, which spreads its support too thinly, but something like a Guaranteed Minimum Income, a generous and no-sanctions benefit which is slowly and carefully clawed back (abated) as people earn more income.

It means providing greater security of housing – both greater rights for renters, but also a renewed drive to build more public housing, using prefabricated techniques to save money, reduce waste, and provide a guaranteed boost to the nascent prefab market.

It also means ensuring that the welfare state does not just provide secure incomes but also helps people build up assets – through, for instance, a Kids KiwiSaver scheme that provides government support for poorer families to save and ensure their children reach adulthood with solid savings.

Finally, once we have reached the other side and are assessing the financial costs of coronavirus, we will need to think about how payment of those costs is apportioned. Former Prime Minister Bill English has already suggested that a capital gains tax might need to be back on the table, if the stock market recovers quickly and it looks as if the pain is not being evenly shared. Gareth Kiernan from Infometrics has suggested a wealth tax. Others are discussing land taxes.

Whatever solution is chosen, we must all be relentlessly focused on ensuring that the coronavirus crisis does not exacerbate inequality. Thinking about inequality cannot be an add-on; it must be woven into everything government does. We need to do everything possible to ensure that a bridge is built for everyone to cross this dangerous ravine, and to ensure that everyone has the stability and security that has always been part of what it means to live well in this country.

A wealth tax for New Zealand

Tax Justice Aotearoa have just published my paper on the case for a net wealth tax in New Zealand. Below is a brief summary of the proposal.

The idea

A wealth tax would be a small annual levy, perhaps 1% or 2%, paid by individuals on the wealth they have above a certain threshold, perhaps $1 million or $2 million.

The justification

In New Zealand, we pay tax on our income (salaries and wages) to fund public services we all rely on, and to help those less fortunate than us. Unlike other developed countries, we don’t ask for the same contribution from people with wealth (assets such as shares and business investments).

But those assets are, just like incomes, generated partly thanks to public infrastructure like roads, broadband, schools and the justice system. Wealthy people often work hard, but they don’t get rich alone. So it’s fair to ask them to pay back into the pot. Yet many wealthy people find ways to pay very little income tax. That’s why every other developed country taxes wealth in some kind of systematic way – and why a wealth tax would make our system fairer.

The benefits

A wealth tax would be levied on net wealth – that is, the value of people’s assets once their debts have been subtracted.

Such a tax would be highly redistributive. Levied at 1% on wealth over $1 million, it would affect only the wealthiest fifth of the country. And it would generate around $6 billion a year. Even a more modest version, starting for instance at $2 million, would generate billions of dollars a year to fund public services, help those who are struggling get back on their feet, and protect the environment.

There are other ways to tax wealth, and they have their merits, but in general they are either too complicated, generate little revenue, or fail to address the real drivers of wealth inequality.

The design

Just as the income tax system works mostly through employers reporting our incomes directly to Inland Revenue, a wealth tax would rely on banks and other companies automatically reporting the value of the assets people hold with them. This would make the annual valuation process simpler, and evasion harder. Other assets have regular valuations (houses) or insurance valuations (valuables). Small household items would not need to be valued. And the growing trend for countries to swap tax information would hinder efforts to evade the tax by parking wealth offshore.

The summary

A wealth tax would fill a major gap in New Zealand’s tax system, thus enhancing fairness, and bring us into line with other developed countries. It would also generate much-needed revenue for tackling pressing social and environmental problems.